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Capital
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Goods owned by companies used to produce other goods in a better way.
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intermediate goods
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Goods used in the production of final goods
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final goods
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products that are purchased by their end users
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investment
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spending on capital equipment, inventories, and structures, including household purchases of new housing
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How to calculate real GDP
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quantity x base year price
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How to calculate nominal GDP
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Quantity x current price
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What does real GDP measure?
answer
Measures the value of goods produced in the economy valued at BASE market prices.
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What does nominal GDP measure?
answer
Measures the value of goods produced in the economy valued at CURRENT market prices.
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Corporate Stock
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shares of ownership in a corporation
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Bonds
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Certificates of debt that carry a promise to buy back the bonds at a higher price
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What is fiscal policy?
answer
Government policy that attempts to manage the economy by controlling taxing and spending.
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How to calculate GDP deflator
answer
Nominal GDP/Real GDP x 100
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What does the GDP deflator measure?
answer
The current level of prices relative to the level of prices in the base year
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How do you calculate CPI
answer
Price of the basket of goods and services in the given year divided by the price of the basket in the base year, then multiplied by 100
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What is the basket of goods?
answer
A selected mix of goods and services that tracks the performance of a specific market or segment.
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What does CPI measure?
answer
the overall cost of the goods and services bought by a typical consumer
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Nominal GDP (2022 II)
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$24.8 trillion
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Real GDP (2022 II)
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$19.7 trillion
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Economic Growth rate(12 months to 2019 IV)
answer
2.34%
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CPI (7/2022)
answer
295.3
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Inflation rate with the CPI (12 months to 12/2021)
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8.5%
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Why is the market hard to beat
answer
it's hard to pick the one stock that performs well. if a few stocks perform well, a large chunk of stocks will do really bad.
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How does fiscal policy influence the economy?
answer
by passing fiscal policy that changes tax rates and government spending, in can improve or reduce spending in the short term.
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How is fiscal policy currently being used in the U.S.?
answer
Government spending was high recently, which was one factor that raised inflation and therefore increased inflation. Recently, policy has decreased spending in order to curb inflation and try and help the economy.
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What is the formula for calculating economic growth and inflation?
answer
(Final - initial)/initial * 100
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What are the limitations of GDP?
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any off the record transactions can't be included, this includes things like crimes
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What are the limitations of CPI?
answer
(Its a very general measurement)
- the CPI only represents the average household therefore will be unrepresentative of non-typical households
- some goods and services are non-applicable to certain households such as those who don't have a car
- everyone has different spending habits
- may be an overestimate - don't account for any improvements in quality/technology
- certain costs may vary with different people e.g. housing prices
- the CPI only represents the average household therefore will be unrepresentative of non-typical households
- some goods and services are non-applicable to certain households such as those who don't have a car
- everyone has different spending habits
- may be an overestimate - don't account for any improvements in quality/technology
- certain costs may vary with different people e.g. housing prices
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To adjust prices for inflation what equation do you use
answer
adjusted price = starting price(ending prices CPI/Starting prices CPI)
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What is subtraction method?
answer
Real Rate = nominal - inflation
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Economic Growth (2021 II to 2022 II, growth rate)
answer
1.7%
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GDP deflator (2022 II)
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126.3
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Inflation rate with the GDP deflator(12 months to2022 II)
answer
7.6%
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CPI (7/2022)
answer
295.3
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Inflation rate with the CPI (12 months to 12/2021)
answer
8.5%
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What is core CPI?
answer
a measure of the overall cost of consumer goods and services excluding food and energy
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How do you calculate CPI?
answer
(value of market basket for the time period/value of base year market basket)*100
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Does CPI tend to over or under estimate inflation rates
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over
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Why is the economy not zero-sum
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all countries gain money as time increases
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What is the connection between economic growth and human health
answer
As the economy grows, so does human health
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how has long run economic growth dramatically changed life and how novel the last two centuries have been
answer
economic growth has encouraged rapid technological growth which in turn has bettered our lives
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What is the % change formula?
answer
(final - initial)/initial*100
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What is the rule of 70 formula?
answer
70/growth rate %
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what does the rule of 70 calculate
answer
the time it takes for something to double, in years based on a growth rate
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What is the average annual growth rate formula?
answer
((final/initial)^(1/number of years in between))-1*100
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if we try to find economic growth, what type of gdp is used
answer
real GDP
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Use CPI from 2017 and 2016, find the percent change between them and subtract the interest rate given by the inflation rate calculated by the CPI to find the real interest rate
answer
What is the real interest rate on a car loan for consumers in 2017? Assume that the car was purchased that year. - how would we find the thing subtracted from the interest rate
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What would the Fed do if it wished to speed up economic growth?
answer
The Fed would lower interest rates which in turns makes it easier to borrow money for big purchases, like for cars, houses, and capital goods. As a result, spending on these goods increases and thus real GDP grows more quickly.
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How could fiscal policy be used to speed up economic growth?
answer
They could lower taxes, which in turn would put more money in the pockets of consumers, and encourage them to spend more, therefore raising GDP
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The long run rate of growth of the U.S. is about ___.
answer
2%
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What rate should you use to tell if there was a recession
answer
real GDP
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unemployment rate formula
answer
unemployed/labor force x 100
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What is U6 unemployment?
answer
the REAL unemployment rate
-U3 plus those who have given up, underemployed, part timers who want to become full time
-U3 plus those who have given up, underemployed, part timers who want to become full time
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What is the U6 formula
answer
U6 = (marginally attached + unemployed + part time wanting full)/(marginally attached + labor force)
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u3
answer
official unemployment rate
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What is the natural rate of employment
answer
structural + frictional + seasonal
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What is potential GDP
answer
The GDP if all producers were working at maximum efficiency
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how does unemployment relate to potential
answer
potential cannot be achieved if the unemployment rate is above the normal rate
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